Monday, April 09, 2007

Would you like to pay a 75% sales tax? This is what you are paying when you purchase a lottery ticket.

Don't believe me? Read on.

First of all, lottery is a form of gambling that pits your odds against the house(lottery organizer), same as most form of casino gambling. So what exactly is your odd of winning? Usually a casino game will have odds that looks approximately like this, ((you 47% vs 53% house)), as you can see, the house always wins, but it wins by a slim margin. Of course some games like the slots have worse odds and some game such as blackjack have better odds, but mostly they do not deviate much from 47% vs 53%.

So what are the odds when you play the lottery? It's ((you 0.00000001% vs 99.99999999% house)). Yes you read that right, the house always wins and wins with a huge margin. Why? Because on any given round of lottery, the house (lottery organizer) takes at least a 50% cut right away, that means no matter if there is a winner, 50% of the money YOU paid is gone! What would you do if a casino take 50% of your bet each time you make a bet, regardless if you win or lose?

But wait, there is more, when you do win the big prize, the government (same entity as the organizer in most cases) takes another 50%+ cut on your prize money as income tax. Feeling the love?

But wait, there is more, you know the money you spent to purchase the lottery ticket? that's after tax dollars, meaning you already paid income tax on that money! Every single dollar in the prize pool are after tax dollars! So basically, millions of people are buying a lottery ticket, so they can have the privilege to have one lucky person to pay income tax on after tax money again! Although millions of dollars changed hands, nothing was produced, it's just magic and more income tax!

So what really is the odd of winning the lottery? Well it's different each time, but I could tell you this, you are approximately 1000 times more likely to die in a car accident than winning the lottery.

Here is an example with numbers:Step 0. 300 million after tax dollars spent on lottery ticket (government= +$60 mil, due to income tax)

Step 4. The winner is left with $75 mil while the government's net profit is $280 million dollars!

Yes that's right, you effectively just paid 75% sales tax to purchase a lottery ticket, so that you can gamble in a game with odds that is the worst odds on the planet.

But that's all fine, if people are willing to do it, why should I care? I care because a government organized lottery is nothing but a regressive tax. Those who are most likely to buy a lottery ticket are usually the less affluent members of society. So a lottery is effectively a tax that only collected from the poor, thus making the poor poorer.

The following comments are from wikipedia:"The astronomically high odds against winning have also led to the epithets of a "tax on stupidity", "math tax" or the oxymoron "voluntary tax" (playing the lottery is voluntary; taxes are not). They are intended to suggest that lotteries are governmental revenue-raising mechanisms that will attract only those consumers who fail to see that the game is a very bad deal. Indeed, the desire of lottery operators to guarantee themselves a profit requires that a lottery ticket be worth substantially less than what it costs to buy. After taking into account the present value of the lottery prize as a single lump sum cash payment, the impact of any taxes that might apply, and the likelihood of having to share the prize with other winners, it is not uncommon to find that a ticket for a typical major lottery is worth less than one third of its purchase price." - http://en.wikipedia.org/wiki/Lottery